State pensioners on lower incomes could see their weekly allowance topped up to £332.95 as a couple through Pension Credit, according to Derence Lee, Chief Finance Officer at Shepherds Friendly. The boost applies to couples, while single pensioners can receive a top-up to £218.15 per week. Both figures remain below the tax-free allowance threshold, Lee noted.
Pension Credit eligibility and amounts
Pension Credit is a Department for Work and Pensions (DWP) benefit designed to help those of State Pension age on lower incomes. Lee explained that for example, single pensioners can get their weekly allowance topped up to £218.15, or £332.95 as a couple, both of which are below the tax-free allowance threshold. The benefit aims to ensure retirees have enough to cover essential living costs.
Lee highlighted that due to the extremely high levels of inflation the UK has experienced since 2020, state pensions have been increasing at a rate that some experts believe to be unsustainable in the long term. He warned that with pensions expected to surpass the frozen tax-free allowance limit next year, which will remain unchanged by the Government until 2028, more retirees will be pushed into the tax-paying bracket.
Tax implications for pensioners
Lee stated: "As a result, pensioners should begin to take into account that they may soon need to pay income tax on their pensions should no changes be made to current status-quo." He added that whilst the triple lock has been helpful in ensuring retirees' incomes keep up with the cost of living, taxing pensioners could have significant financial implications, particularly for those who rely heavily on their pensions to cover essential living costs and make ends meet.
The CFO emphasised that pensioners should prepare for potential tax liabilities. He said: "Due to the extremely high levels of inflation the UK has experienced since 2020, state pensions have been increasing at a rate that some experts believe to be unsustainable in the long term." This comes as the Government has frozen the tax-free allowance until 2028, meaning more pensioners may be drawn into paying income tax on their state pensions.
Financial planning advice for retirees
Lee offered practical advice for those approaching retirement or already retired. He suggested that those still working part-time or receiving self-employed income might consider making additional contributions to a private pension to help with costs once they retire from work completely. He also recommended building up income through tax-free ISAs, growing savings through investments where possible, and utilising workplace pension schemes to secure future income during retirement.
"For those looking to retire in the near future, they should consider how their income can be built up by saving into a tax-free ISA, growing their savings through investments where possible, and utilising workplace pension schemes to secure their future income during retirement," Lee said. He stressed the importance of having a financial back up plan, noting that due to the increasingly aging population and the context of economic uncertainty, it can be hard to predict what the future of the triple lock will look like.
Lee concluded: "It's always best to have a financial back up plan in place where possible." Pensioners are encouraged to check their eligibility for Pension Credit and consider long-term financial planning to mitigate the impact of potential tax changes on their retirement income.
